With the value of $2.6 billion, the transaction will be operationally accretive in year one and ABB expects to realise approximately $200 million of annual cost synergies by year five, which will be key in bringing GE Industrial Solutions to peer performance, ABB said in its statement.
As part of the transaction and overall value creation, ABB and GE have agreed to establish a long-term, strategic supply relationship for GE Industrial Solutions products and ABB products that GE sources today.
“With GE Industrial Solutions, we strengthen our Number 2 position in electrification globally and expand our access to the attractive North American market,” said ABB CEO Ulrich Spiesshofer.
“Combined with the long-term strategic supply relationship with GE, this transaction creates significant value for our shareholders,” Spiesshofer said, adding that together with the GE Industrial Solutions team, ABB will execute well-established plans in a disciplined way to bring this business as part of the global ABB family back to peer performance.
“With this next step of active portfolio management, we continue to shift ABB’s centre of gravity in line with our Next Level strategy by strengthening competitiveness, mainly in the North American market, and lowering risk with an early-cycle business,” he added.
This combination, according to John Flannery, CEO of GE, would bring together two global businesses with a broad complement of electrical protection and distribution assets.
“ABB values our people, domain expertise, and our ability to operate in the segments where we have depth and experience. GE will also benefit through an expanded strategic supply relationship with ABB as the two companies work together,” Flannery said.
GE Industrial Solutions will be integrated into ABB’s Electrification Products (EP) division, resulting in a unique global portfolio and very comprehensive offering for North American and global customers.
They will benefit from ABB’s innovative technologies and the ABB AbilityTM digital offering, coupled with GE Industrial Solutions’ complementary solutions and market access.
Included in the acquisition is a long-term right to use the GE brand. ABB will retain the GE Industrial Solutions management team and build upon its experienced sales force.
After closing, this transaction will have an initial dampening effect on EP’s operational EBITA margin.
ABB commits to returning EP to its target margin corridor of 15-19 per cent during 2020.
Tarak Mehta, president of ABB’s EP division, said this acquisition strengthens ABB’s position as a partner of choice for electrification globally and in North America.
“We look forward to working with GE Industrial Solutions’ and ABB’s customers and channel partners to create new opportunities in this highly attractive core market for our division. We have a clear integration plan to realise the synergies of this combination and to bring our combined business back into the target margin corridor by 2020,” said Mehta.
ABB’s EP division delivers more than 1.5 million products to customers around the world every day through a global network of channel partners and end-customers.
EP offers a comprehensive portfolio of low- and medium-voltage products and solutions for a smarter, more reliable flow of electricity from substation to socket. Given this transaction, ABB has decided to put the previously announced share buyback programme on hold.
GE Industrial Solutions has deep customer relationships in more than 100 countries and an established installed base with strong roots in North America, ABB’s biggest market.
Headquartered in Atlanta, Georgia, GE Industrial Solutions has about 13,500 employees around the world.
In 2016, GE Industrial Solutions had revenues of approximately $2.7 billion, with an operational EBITDA margin of approximately 8% and an operational EBITA margin of approximately 6%.